How to invest in the stock market with little money?
Personal finances
September 11, 2024
Si llegaste hasta aquí estás convencido de todas las ventajas de invertir anticipadamente, para disfrutar del presente y garantizar estabilidad económica en un futuro.
¿Cuándo y cuánto deberías invertir?
Lamentablemente, no existe una única respuesta, todo va a depender de tu capacidad financiera y el momento en el que te encuentres, pero es recomendable empezar a invertir incluso con poco dinero, porque gracias al interés compuesto (hablaremos de esto más adelante), ese "poco" dinero crecerá.
Sigue estos simples pasos y comienza a invertir:
1: Busca una buena plataforma de inversión mejor si es 0 comisiones y que no exija fondos mínimos;
2: Investiga y analiza, hacer análisis financieros puede ser algo trabajoso, pero por suerte tenemos a Google.
3: Diversifica tus inversiones;
4: Es necesario establecer y "saber cuándo parar";
5: Paciencia, ante la volatilidad de la bolsa.
Esperamos haberte ayudado a resolver tus dudas y que sigas encontrando contenido de valor en los artículos que compartimos.
Recuerda que estamos construyendo un diccionario financiero que facilite tu camino hacia la libertad financiera.
Before anything else, anyone can invest in the stock market—you don’t need to have a lot of money. The key is to get your finances in order and start investing as early as possible. As the saying goes, time is money.
As investors, it’s important to understand that the money you allocate for investing should be excess funds—that is, money you won’t need for at least the next 6 months to a year. Additionally, it’s wise to have a small emergency fund, savings that can cover 3 to 4 months of basic expenses (just in case you need it).
Forget about luck and make your money work for you. To do this, you need to have an investment plan.
Strategy is a term derived from Greek, referring to the art of directing military operations to achieve victories. In the financial realm, strategy means: creating a plan to achieve higher returns, analyzing factors such as risk, types of assets, the region, the industry of the companies, and of course, the time you are willing to invest, which will solidify your strategy.
Having an investment strategy means planning elements like: the types of assets, analyzing the balance between returns, time, and risk.
Are you ready to take the first step? Let’s dive into the content on how to start investing with little money, avoid pitfalls, and make the most out of your investments as soon as possible. First things first, let’s answer the following question:
To give you an idea of what a stock market is, imagine it as a large supermarket where we can go to buy and stock up on a variety of foods. This space with diverse products, which we choose based on our needs, is very similar to the stock market, except that the products are different.
Unlike supermarkets, stock exchanges are markets where you have access to a wide variety of company shares in all sectors, which you can buy and sell. The most popular securities are stocks, but there are also bonds, ETFs, options, and others. Let’s define the stock market more formally:
The stock market is simply a market, whether physical or virtual, that allows the exchange or trading of stocks, bonds, or any similar financial product between legal or natural persons offering capital or demanding assets.
This topic deserves a full article: Through this blog, we will explain everything you need to know before investing in the stock market. Stay tuned!
There are two ways to make money in the stock market:
In simple terms, it’s when you buy for less than you sell; it’s about taking advantage of price increases regardless of the company’s industry. Suppose you buy an Apple share at $10 and sell it at $30, that $20 difference is the profit on your invested capital. This market appreciation allows you to generate income on your capital.
This means earning returns on your investment through dividend payments or surpluses; and how does this work?
What are dividends? They are the distribution of a percentage of the profits generated by a stock and are shared among its shareholders.
It’s important to note that not all profits are distributed; usually, only a portion is.
For example, if a company’s share is priced at $60 and, let’s say, in its profit-sharing policy, they decide to pay a dividend of $1.5 per share, we would be talking about a dividend yield of 2.5% annually; this is the percentage of return obtained regardless of capital gains, and now the question arises:
How much can you earn from dividends?
Ultimately, it depends on each company’s ability to generate profits and decide the percentage to distribute through dividends. Usually, a solid company distributes between 3 to 5% in dividends annually.
There are also companies that distribute a smaller percentage, and some that do not pay dividends at all. So, what do they do with those profits? Usually, they reinvest that capital in projects within the same company.
After understanding what the stock market is in simple terms, let’s look at some tips to grow your capital.
Think big, plan, and execute actions to safely grow your capital, so here are some tips to get your finances in order.
Implementing these simple actions will help you increase your initial capital and better control your finances, let’s continue:
That’s it! You’ve managed to set aside a sum of money to start investing, now what?
First, you need to know and analyze the companies you will invest in; it’s time to answer questions like: what sector are you interested in investing in, what is the state of their assets, are their stock prices overvalued, how much risk are you willing to take, and how long are you willing to wait? That, future investor, is performing a financial analysis.
If your budget is limited, one option is to start using a laddered technique. This will allow you to start with little money and gradually increase your investments over time. Have you heard the phrase “divide and conquer”? Well, it can be applied in the investment world to achieve a diversified portfolio. This means you can buy a portion, a fraction of a share, without having to buy a whole share, which in some cases, could be expensive, and also diversify your stock portfolio:
For example, let’s say you have $1,000 to invest, instead of buying a big share and spending all that capital, you could divide it into four $250 purchases, buying only a percentage, starting with a slower but safer step.
Unlike countries like the US, where the culture of investing is much more ingrained, in Latin America there is still a lot of resistance or fear when it comes to these topics due to lack of knowledge, so how do we stop being afraid? By learning, being open to education, strengthening financial literacy, and eliminating biases and myths about the stock market.
With all that clear, now you need a safe medium to invest in the stock market.
If you’ve made it this far, you’ve overcome another obstacle:
“I don’t have time to learn about the stock market.”
Because you’ve surely understood that it’s a matter of priorities, financial education is an investment in itself, allowing you to strengthen and grow in all areas of your life. If you don’t make your money work for you, you’ll always be working for money. It’s all about perspective!
Now that you’ve overcome that excuse, we can continue:
To invest, it’s necessary to consider the three fundamental pillars when starting to invest, achieving balance in this triangle will help you make better decisions:
Three angles, three parts: risk, liquidity, and return, aligned to achieve the same purpose; reducing risk when investing, better evaluating time, and minimizing losses as much as possible.
Reducing risk when investing is minimizing the potential loss of profits.
(If you want to learn more about financial risk, stay tuned to Hapi’s blog as the future will reveal the term.)
In summary, financial risk is the degree of probability that your gains will yield less than expected or result in a loss. We’re talking about the relationship: more risk = greater chance of earning more.
This is why for risk-taking investors, it may be tempting to take more risks to earn more and secure better returns.
Do you already know what type of investor you are? and how can it help you decide which stock to buy? Find out in our next weekly post.
According to Economipedia, liquidity is the ability of an asset to be converted into cash in the short term without the price being reduced. In summary:
Liquidity is the level of speed at which an asset can be turned into cash, meaning an asset is more liquid the faster it can be converted into money without losing its initial value.
We arrive at the last pillar, but not the least important.
When we talk about return, we’re also talking about profitability, or specifically the gains we expect to obtain from our investments. In the end, it’s all about this last pillar; every investment should and can achieve returns by balancing the elements of this triangle.
The first thing you need to do is answer these three questions:
How much do you want to invest?
How long are you willing to wait for a return?
How much risk are you willing to take?
Now let’s put what we’ve learned into practice.
If you've made it this far, you're convinced of all the advantages of investing early to enjoy the present and ensure economic stability in the future.
When and how much should you invest?
Unfortunately, there isn’t a single answer; it all depends on your financial capacity and the moment you find yourself in. However, it’s advisable to start investing even with a small amount because, thanks to compound interest (we’ll discuss this later), that "small" amount will grow.
Follow these simple steps and start investing:
We hope we've helped answer your questions and that you continue to find valuable content in the articles we share.
Remember, we're building a financial dictionary to make your path to financial freedom easier.
Member of FINRA and SIPC
All investments involve risk, including the loss of capital. Hapi offers self directed investment accounts for those investors who feel comfortable managing their own investments. For a full list of our disclosures, please visit our disclosures page.